Ontario could become one of the most competitive jurisdictions in North America if it were to take a radical approach to taxation.
Cutting the personal and corporate tax rates to just 8% would boost investment in the province and help to attract top talent, the Fraser Institure report says.
“Ontario’s economy has struggled for many years, partly because uncompetitive tax rates discourage businesses and entrepreneurs from moving here and investing in the province,” said Ben Eisen, director of the Fraser Institute’s Ontario Prosperity Initiative and co-author of Time for Tax Reform in Ontario.
If the government were to slash the combined tax rate for the province’s residents to just 8%, it would be the 12th lowest top marginal tax rate in North America (including federal and provincial/state taxes).
Currently Ontario’s wealthiest residents are taxed at a top rate of 53.53%, the second-highest in North America and far above competing jurisdictions such as Ohio (42%) and Michigan (41.25%).
Additionally, cutting the corporate tax rate from 11.5% to 8% would give Ontario the seventh lowest tax rate in North America. The competitiveness of Ontario businesses has been eroded by the recent corporate tax cuts in the US.
Tax cuts would cost Ontario $11 billion
Although there would be an estimated cost to the province of $11 billion if they were to scrap the 7-tier personal tax rates to a single 8%, and corporate taxes to 8%; the report highlights that half of this could be offset by freezing public spending at 2017/18 rates (which were up 6% year-over-year).
“Even modest spending restraint would create much of the fiscal room needed to pursue meaningful tax reform and relief that could help make Ontario a more attractive place for entrepreneurs, businesses, and skilled labour,” Eisen said. “There’s no easy fix for reversing Ontario’s relatively poor economic performance, but in light of the new competitive pressures coming from the U.S., reforming the province’s high taxes is a good place to start.”